Euro Close on Wednesday Critical for any Near Term Trades

The Euro has finally managed to take out key topside barriers by 1.3500 on Wednesday and it will now be interesting to see how the market reacts from now into the New York close. A close back above 1.3500 will be viewed as a bullish development and likely open the door for additional upside over the coming days, potentially towards the 1.3800-1.4000 area. However, inability to close above 1.3500 will keep the prevailing structure intact and suggest that the market is still adhering to a well defined multi-day consolidation. This then could open the door for yet another topside failure and bearish resumption back below 1.3000 over the coming sessions.

Relative Performance Versus USD Wednesday (As of 11:35GMT)

1. EURO+0.56%
2. AUSSIE +0.54%
3. SWISSIE+0.47%
4. KIWI+0.44%
5. YEN+0.43%
6. STERLING+0.11%
7. CAD+0.08%

The primary drivers behind the latest surge in the Euro and currencies in general have been the very well bid global equity markets, commitments from Russia, China, India and Japan to buy EFSF debt to support the Euro, and an ongoing lack of concern or sense of urgency from the Fed to look to begin to tighten monetary policy despite rising inflationary pressures. On the data front, Wednesday’s session has been all about the UK, with a batch of employment data coming in across the board better than expected to keep the Pound well propped. Nevertheless, the single currency has failed to extend gains on Wednesday, even with the stronger data, and solid offers have emerged into strength ahead of 1.6100.

Looking ahead, market participants will be sure to focus on US Q4 earning results, and although we have seen some impressive showings from the likes of Apple and IBM, the more important earnings to watch remain those in the financial and banking sectors. State Street, Northern Trust, BONY Mellon, Wells Fargo and Goldman Sachs earnings will all be digested in Wednesday trade and likely to influence broader global macro price action. Meanwhile, on the economic data front, Canada manufacturing shipments (0.5% expected) are due at 13:30GMT along with US housing starts (550k expected) and building approvals (555k expected). US equity futures are slightly offered while commodities are mildly bid. It is however worth noting that the impressive move in equities has now resulted in some overbought daily technical studies which are a red flag for potential weakness in stocks over the coming days.

TECHNICAL OUTLOOK

EUR/USD:Although the market has rallied quite impressively out from the recent multi-week lows set by 1.2875, we continue to classify the bounce as corrective, with any additional rallies expected to be well capped below 1.3500 on a close basis ahead of some fresh weakness. The market is still very much trading within a well defined multi-week range. As such, only a close back above 1.3500 would give reason for concern and delay outlook.

USD/JPY: The market appears to be locked in some consolidation with clear directional boas not easily determined. The latest rally has stalled out by the Ichimoku cloud top to suggest that the pressure still remains on the downside for now. Back below 82.00 should accelerate declines and expose the multi-year lows from 2010 just ahead of 80.00, while back above 83.70 will relieve downside pressures and shift structure back to the topside.

GBP/USD: The latest break back above 1.5910 delays bearish prospects for the time being and now opens the door for additional strength towards the key 78.6% fib retrace off of the October-November major move which comes in by 1.6090. Nevertheless, our core bias still remains bearish and any rallies into this fib retrace are viewed as a formidable sell opportunity in favor of some renewed downside pressures. Look for a break and close back below 1.5835 to officially confirm and accelerate. A close above 1.6100 concerns.

USD/CHF: Overall price action is certainly concerning for our longer-term basing outlook with the market dropping to fresh record lows by 0.9300 thus far. However, cyclical studies are showing oversold and any additional declines below 0.9300 are not seen as sustainable. The latest bounce back above 0.9600 is certainly encouraging and the rally has also triggered the break of a previous weekly high to set up a bullish reversal week. Look for continued acceleration of gains back above parity over the coming sessions, with any setbacks expected to be well supported above 0.9400 on a close basis.

FLOWS

A French and German name have been seen selling around the top in Eur/Usd with a real money account on the bid, a UK clear has been leading bids in Cable. Momentum types and an ACB seen on the offer in Usd/Cad.